FN Arena News
Latest News
Asia
Australia
Commodities
Currencies
Economics
Feature Stories
FYI
Small Caps
Technicals
Weekly Analysis
Weekly Insights
Weekly PDF
Research Reports
Sources Of Wisdom

FNArena

Email Us

Member Login


FYI

The Overnight Report: Oil Tanks
FNArena News - September 20 2012

By Greg Peel

The Dow closed up 13 points, or 0.1%, while the S&P gained 0.1% to 1461 and the Nasdaq added 0.2%.

It began on Monday night, with a sudden US$5 plunge in the price of Brent crude seeing both Brent and West Texas ultimately settle around US$3 lower. It carried through on Tuesday night, as the oils fell another US$2 or so and then last night we saw Brent down US$3.84 to US$108.19/bbl and West Texas down US$3.54 to US$91.75/bbl.

There has been a lot of speculation about what actually happened on Monday night. Was it a computer glitch? Not according to the exchanges. Was it a “fat finger” error? Not according to further weakness on Tuesday. Was it expectation of a US government reserve release? We have no plans, said the government. Then last night the weekly US inventory data showed a much bigger than expected jump in stocks of crude.

The next step was for the US Energy Information Agency to deny that its data were leaked ahead of their release, but in the meantime it has been revealed that the Saudis are apparently selling. OPEC has been concerned with the rising price of oil, and no doubt became more concerned after last week's QE3 announcement, offering up the potential for a weaker US dollar and thus higher nominal oil prices. OPEC gets nervous over US$100/bbl (West Texas), as the organisation knows such prices encourage further shifting towards alternative energy sources.

So there we have it, supposedly. A lot of traders would have been caught long on Monday night as a person or persons unknown dumped a big sell order on the Brent market, given the QE3 impetus for higher prices and that fact oil has become a popular inflation-hedge trade in recent years, perhaps even usurping that role from gold. It took another session for traders to make sure it wasn't just a mistake, and by last night the herd was stampeding.

Lower oil prices are good for the overall global economy, but not so great in the short term for energy sector companies. This balance goes some way to explaining why Wall Street has not gone anywhere much these past couple of sessions. 

Outside of the energy sector impact, last night Wall Street was encouraged by a 7.8% jump in US existing home sales, to the highest level since May 2010. Housing starts – the important number – rose by an annualised 750,000, but while this was a little short of expectations, it was still a 2.3% increase.

And if you can't beat 'em, join 'em. The Bank of Japan unsurprisingly joined the latest round of the printing bonanza by last night announcing an increase in its ongoing QE program of 10trn yen or US$127bn to 80trn yen. Why the increase? Well if the Fed devalues the US dollar the move has a direct offset of inflating the yen and Japan's is an export-dependent economy that suffers directly from a higher currency. Sounds like another economy I know, but the name escapes me right now.

At the end of the day the US dollar index, which includes the dollar-yen, actually slipped a tad to 79.11, but never fear, the Aussie regained 0.3% to US$1.0481.

Ben Bernanke must currently be feeling like the guy who threw a party, but nobody came. Aside from a brief jump, markets have not much responded to much heralded QE3. Obviously there was a lot of anticipation built in, and we've reached the point of “okay now what?” US investor surveys show confidence is building, yet mutual funds are still suffering net outflows. If that turns around, look out, but it seems investors still have to negotiate the fiscal cliff before taking that leap of faith.

We are about to enter the scary month of October, although statistically September is the worst month and so far so good. Will we get a Christmas rally? Well the Christmas rallies of the past few years have started from the low point of third quarter market crunches, affected previously by European woes or US rating downgrades et al. If we don't see a crunch in the third quarter or into the fourth then it's hard to see exactly what will inspire any Christmas rally, but then with global central banks all playing argy-bargy on currency devaluation and “whatever it takes” commitments, it’s difficult to see what could lead markets meaningfully lower, outside of, for example, a nuclear war in the Middle East.

Base metals are thus back to being confused, with prices mixed and moves minimal last night. Despite another member joining the 2012 QE club, gold is steady at US$1770.30/oz. The US ten-year bond yield is similarly hanging about at 1.78%.

The SPI Overnight fell 5 points. Today sees the expiry of the September SPI contract and the expiry of exchange-listed index options. Such expiries can cause a bit of inexplicable volatility on the day. Tomorrow night in the US sees the similar “quadruple witching” quarterly event.

It's otherwise a good day for flashers today, which has nothing to do with warm weather. HSBC will provide its flash estimate of China's August manufacturing PMI today, and tonight will see equivalent estimates follow for the eurozone and US.

After yesterday's retailer nightmare we'll see how Kathmandu ((KMD)) and OrotonGroup ((ORL)) fared with their full-year results today, and we'll also see reports from Brickworks ((BKW)), Bandanna Energy ((BND)) and Gindalbie Metals ((GBG)).

Rudi will appear on Sky Business today at noon and again at 7pm on the Switzer Report.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here.

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.



Our archive tells no lies. FNArena warned its readers well before the price of crude oil peaked in 2008 the speculator bubble would deflate with devastating consequences for those holding oil company shares. In August we warned the most severe correction in modern history was forthcoming for natural resources. In 2007 we warned the problem with US subprime mortgages would prove much bigger than experts and media were anticipating (among other things).

FNArena is showing the true value of truly independent financial analysis and reporting. Our daily news reports can be trialed at no cost and with no obligations at www.fnarena.com. Simply sign up and see it for yourself.

Subscribers and trialists should read our terms and conditions, available on the website.

All material published by FNArena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.


The content of this information does in no way reflect the opinions of FNArena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FNArena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FNArena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.
© News Network 2014. All Rights Reserved. No portion of this website may be reproduced, copied or in any way re-used without written permission from News Network. All subscribers should read our terms and conditions.